LDC graduation: What lies ahead for the pharmaceutical sector of Bangladesh?

Caption: Bangladesh needs to scale up its political and negotiating efforts to enjoy patent waiver on pharmaceutical products beyond LDC graduation. PHOTO: MUMIT M

Bangladesh, a country which was once regarded as a "test case for development" has made remarkable progress in terms of growth and development over the past few decades. The country is on its way to become a developed country by 2041 and has been recommended by the UN Committee for Development Policy (CDP) for graduation from the LDC category by 2026. 

As an LDC, currently Bangladesh enjoys preferential treatment in international trade, special facilities in the form of development assistance (including technical cooperation and development financing). Generalised System of Preferences (GSP), Duty-free and quota-free (DQFQ) market access, special market access facilities in the Regional Trade Agreements (RTAs) and flexibilities under WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement are also availed by the LDCs.

These LDC specific provisions have helped Bangladesh become a trade-dependent country from an aid-dependent one.

The pharmaceutical industry of Bangladesh has been one of the major beneficiaries of the patent waiver dedicated towards the LDCs. 

According to ITC, the global export of pharmaceutical products was worth $818.4 billion in 2021 while the pharmaceutical product export for LDCs was worth $168.2 million. 

Among the LDCs, Bangladesh exported the highest amount of pharma products, accounting for about 55.4% of the total LDC export of pharmaceutical products. 

Policies such as the National Drug Policy 1982, Drug Control Ordinance 1982, National Drug Policy 2005, and National Drug Policy 2016 have played a vital role in the emergence of the domestic pharmaceutical industry of the country.  The domestic market is now dominated by Bangladeshi firms which was previously dominated by Multinational Corporations (MNCs). 

Currently, there are no foreign firms in the top 10 pharmaceutical firms' list in the country. Bangladesh's pharmaceutical export has been growing at a tremendous pace making it one of the leading potential sectors for export diversification. Pharmaceutical export has grown by 269.8% from $45.7 million in FY09 to $169 million in FY21. 

In FY22 (July-May) pharmaceutical export has already generated earnings of $175.1 million. Bangladesh is exporting its pharmaceutical products to more than 130 countries including the UK, USA, Philippines, and European Union. The pharmaceutical sector in Bangladesh supplies 97% of the country's domestic demand. Vaccines, anti-cancer products and hormone drugs which account for the other 3% of the national demand are met by imports. 

TRIPS agreement is the most sophisticated agreement concerning intellectual property rights which outlines minimal requirements for international intellectual property rules, including pharmaceutical patents. The agreement also aims to harmonise patent regulations. 

The patent waiver in regards to the agreement has provided the pharmaceutical companies in the country the opportunity to provide medicines at cheaper prices while not jeopardising their financial interests. Bangladesh can avoid implementing Intellectual Property Rights (IPRs) on all innovations and more specifically on innovations in the pharmaceutical sector due to this waiver. 

The transition period for putting the IPR into effect has been extended until 2034 while a distinct transition period for IPR related to pharmaceutical products will be in existence until 2033 for LDCs. But, once LDCs graduate from the category they will not be entitled with these benefits. 

The Article 70.8 of the TRIPS agreement states that WTO member states must maintain regulatory arrangements that allow the filing of patents, which is also known as "mailbox provision", so that when TRIPS protection commences upon implementation of the TRIPS, the filed applications can get patent protection right away and remain valid for the rest of the time (20 years) while Article 70.9 emphasises the importance of ensuring exclusive marketing rights for a period of five years. 

Bangladesh as an LDC received waiver in implementing these articles which contributed to boosting the pharma sector. However, revoking the patent waiver under the agreement is believed to result in increased drug prices and will limit access to medicines by restricting competition and domestic production undermining the cause of making medications more affordable. 

The requirement of a mailbox may also necessitate significant administrative work, putting a strain on the country's health budget. Not only Bangladesh, but also countries, especially LDCs importing medicines from the country will also be impacted negatively by the imposition of pharmaceutical patent protection.

Adverse impacts of LDC graduation will be felt to a great extent due to increased intellectual property fees on import of Active Pharmaceutical Ingredients (API). Bangladesh is highly dependent on imported APIs which is a key ingredient in drug production. 

The pharmaceutical industry imported APIs worth more than $1 billion in FY21, which are mostly imported from China and India. The country has taken initiative to increase its API production through import substitution which is really praiseworthy. Bangladesh government has developed the API Policy in 2018 with the goal of attracting $1 billion in investment for API development and reducing import dependency to 80% by 2032. 

The strategy seeks to increase API export income and generate employment for 5.5 lakh people by 2032. A special API Park has also recently been constructed. The firms that are able to develop 3 molecules yearly will qualify for 75% tax holiday while firms developing five molecules a year will qualify for 100% tax holiday. 

Furthermore, firms will be required to invest at least 1% of their yearly revenue on R&D and gradually enhance their collaboration with academic and research institutions. However, Bangladesh will need to invest more to upgrade API facilities and attract more FDI in the pharmaceutical sector which has been evidently emphasised in the API policy. 

According to the Bangladesh Bank FDI survey report, FDI Net inflows in the Pharmaceuticals and Chemicals sector was only $81.05 million out of the total FDI Net Inflow of $2.90 billion in 2021.

Collaboration between the public and private sectors, as well as partnerships with international organisations will be critical to enhance R&D efficiencies and exploit modern skills and technological know-how. GoB has been emphasising collaboration with international firms in this regard.

Bangladesh can take lessons from one of the successful LDC graduated countries, Maldives. The country graduated from the LDC category in 2011 and there were concerns regarding the impact of graduation on fish export, which is a major exporting product for Maldives. 

However, exports grew significantly after graduation when the country faced a pre-graduation drop in exports. The country targeted the existing markets and scaled up its export to a great extent by enhancing national capacity for trade-related issues. ExportsF of fish and crustaceans, molluscs and other aquatic invertebrates to the Thai market were worth $22.16 million in 2010 which surged to $70.18 million in 2021. Maldives' exports to the European Union (EU) also observed an upward trend after graduation. 

Bangladesh's top pharma exporting destinations import a very low share of pharma products from Bangladesh. For example, Bangladesh accounts for only 0.01% and 0.6% of the pharma import share of the USA and Philippines, respectively. 

Taking lessons from Maldives, the country should enhance national capacity for issues concerning trade and develop strategies (such as signing FTAs, PTAs) to penetrate the pharmaceutical markets of these countries and other LDCs even after graduation. 

What is commendable is that Bangladesh has already emphasised on identifying potential partners and signing more FTAs and PTAs. The country is also actively negotiating with the EU for availing the GSP Plus scheme after graduation.

In addition, Bangladesh needs to scale up its political and negotiating efforts to enjoy patent waiver on pharmaceutical products beyond LDC graduation. The country has already demanded continuation of the TRIPS waiver until at least 2029 at the 12th Ministerial Conference (MC) of the WTO. 

To ensure fair competition, the domestic market is required to be opened for MNCs as the country graduates from the LDC category. The government should gradually lift the existing barriers for MNCs to avoid immediate shock and also stimulate collaboration with MNCs to invent drugs domestically. In order to facilitate registration of new drugs which are domestically invented, the current Directorate General of Drug Administration (DGDA) should be revamped.  

Sketch: TBS

Muhammad Nafis Shahriar Farabi is a Research Associate (RA) at Bangladesh Institute of Governance and Management (BIGM).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.